NAV Market Research & Analysis Report
Updated Jun 24, 2015

Growth and Balance Sheet

The company reported net loss of $64 million, or 78 cents diluted loss per share, for the second quarter of fiscal year 2015 ending April 30. That's up from net loss of $297 million, or $3.65 diluted loss per share for the same quarter last fiscal year. Revenues for the second quarter were $2,693 million, down from $2,746 million for the same quarter last fiscal year. Company’s business sectors recorded mixed results in revenue growth in comparison to the same quarter last fiscal year. Truck revenue was up 4.1% to $1,966 million, primarily due to improved Core truck volumes. Parts revenue was down 2.7% to $613 million, primarily due to decline in BDP and export parts sales. Global operations revenue was down 52% to $130 million, primarily due to lower volumes and unfavorable movements in foreign currency exchange rates. Financial Services segment revenue was up 5.3% to $60 million, primarily due to an increase in the average wholesale notes receivable balance. The gross margin improved to 11.21% of sales from 8.86% in the second quarter of last fiscal year. Net cash used in operating activities for the six months ending April 30, 2015 was $237 million, in comparison to $326 million for the same period last fiscal year. Cash and cash equivalents as of April 30, 2015 were $583 million, in comparison to $497 million as of October 31, 2014. NAV forecasted EPS for the third quarter of fiscal year 2015 are expected to be from -6 cents to 45 cents, compared to actual loss per share of 6 cents for the third quarter of last fiscal year. The financial strength indicators of the company are lagging behind industry averages. Company’s current ratio is 1.19 and the industry average ratio is 1.81. The quick ratio of 0.88 is also at worse levels than the industry average of 1.24. The interest coverage ratio of -1.62 is showing that the company is not able to cover for its interest expenses from its operating earnings and it is at much worse levels than the industry average of 19.62. In terms of efficiency and effectiveness, the asset turnover ratio of 1.50 is superior to the industry average of 0.72; the inventory turnover ratio of 7.19 is much better than the industry average ratio of 3.05; and the ROA of -1.98% is worse than the industry average of 5.12%. 

Valuation

NAV PE is not meaningful due to negative earnings in the twelve trailing months and in the past three years. The company’s shares have traded in the range of 1.78x to 15.82x trailing 12-month earnings. NAV's current Price/Sales of 0.17 is below the average of its industry of 0.75. NAV’s head to head comparison to its main competitors shows that the company has average gross margin, and one that is below the industry average. The achieved operating margin of the company is worse result in comparison to the selected competitors, and below the industry average. The quarterly revenue growth of the company is negative and below the industry average, but it is better result than BAESY. NAV trades at lower P/S ratio in comparison to PCAR. NAV’s twelve trailing months EBITDA is $361 million, lowest result out of the achieved EBITDAs by the selected peers, and in line with the industry average of. The stock is currently trading below its intrinsic value of $32.16, this suggests that the stock is currently undervalued at these levels. The beta of 3.12 implies much higher volatility of the stock with respect to the S&P 500. NAV has shown favorable earnings consistency over the last five years. The current quarter earnings in comparison to the same quarter last year have increased by 78.58%. NAV’s current price levels are above the maximum level, 41% below the 52 week high of $40.17, and the technical analysis give negative view of the stock. The majority of analyst ratings are hold. NAV currently does not pay any dividends.

About NAV

Navistar International Corporation (NIC) is a holding company, whose principal operating subsidiaries are Navistar, Inc. and Navistar Financial Corporation (NFC). The Company is a manufacturer of International brand commercial and military trucks, MaxxForce brand diesel engines, IC Bus (IC) brand school and commercial buses, as well as a provider of service parts for trucks and diesel engines. It also provides retail, wholesale, and lease financing of trucks and parts. The Company operates in four reporting segments, which comprises: North America Truck, North America Parts, Global Operations (collectively referred to as Manufacturing operations), and Financial Services. Its principal products and services include Trucks, Parts, Engines and Financial Services.

Competitor Comparison

Navistar International Corporation N.V.

Highlights

Navistar International Corporation manufactures and sells commercial and military trucks, diesel engines, and school and commercial buses; and provides service parts for trucks and diesel engines worldwide. The stock closed yesterday’s trading session at $23.26. In the past year, the stock has hit a 52-week low of $23.22 and 52-week high of $40.17. The intrinsic value of the stock is above the current price. NAV has a market cap of $1.92 billion and is part of the Consumer Goods sector.

• Strong distribution network in North America
• Diversified product offering     

• Overdependence on the US market
• Unfunded employee pension benefit may impact liquidity

NAV Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. NAV's 52 week high is $40.17, current price is $23.70, is 41% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has not meaningful P/E ratio due to negative earnings in the last three years.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.  Insiders own 35.10% of NAV stock. Management's representation is large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

NAV is trading in the range of $23.22 - $28.07 in the past 30 days. The stock has been showing support around the level of $23 and resistance in the $30 range. The stock is trading below the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 31.48. In September last year the stock hit the resistance level at around $40 from late 2013. Since than the stock has seen nothing but south. Currently it is trading at the lowest levels since March 2013. Our indicators give negative view of NAV.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 3 Buy, 4 Outperform, 12 Hold, and 3 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. NAV’s annual EPS for the last 5 years were 3.05, 22.64, -43.56, -11.17 and -7.60 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. NAV’s Total Debt/Equity is not meaningful because the company is running a stockholder deficit.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. NAV’s EPS growth for this quarter relative to the same quarter a year earlier is 78.58%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. NAV’s annual earnings growth rate over the past five years is not meaningful.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.